1. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 1 Chapter 2: Customer Behavior in Service Encounters

2. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 2 A Framework for Developing Effective Service Marketing Strategies Understanding Customer Needs, Decision Making, and Behavior in Service Encounters Chapter 2 Building the Service Model Part II: Chapters 3-7 Managing the Customer Interface Part III: Chapters 8-11 Implementing Profitable Service Strategies Part IV: Chapters 12-15

3. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 3 A Framework for Developing Effective Service Marketing Strategies Two Key Themes in Part I of the Services Marketing Strategy Framework: Differences among Services Affect Customer Behavior Three-Stage Model of Service Consumption Prepurchase Stage: Search, evaluation of alternatives, decision Service Encounter Stage: Role in high-contact vs. low-contact delivery Post-Encounter Stage: Evaluation against expectations, future intentions

4. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 4 Differences among Services Affect Customer Behavior  Consumers are rarely involved in the manufacture of goods but often participate in service creation and delivery  Challenge for service marketers is to understand how customers interact with service operations  Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:  People processing  Possession processing  Mental stimulus processing  Information processing

5. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 5 Four Categories Of Services (Fig 2.1) Information processing (services directed at intangible assets):  Accounting  Banking Nature of the Service ActPeoplePossessions Tangible Actions People processing (services directed at people ’ s bodies):  Barbers  Health care Who or What Is the Direct Recipient of the Service? Possession processing (services directed at physical possessions):  Refueling  Disposal/recycling Mental stimulus processing (services directed at people ’ s minds):  Education  Advertising/PR Intangible Actions

6. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 6 People Processing  Customers must:  Physically enter the service factory  Co-operate actively with the service operation  Managers should think about process and output from customer’s perspective  To identify benefits created and non-financial costs: ― Time, mental, physical effort Four Categories Of Services

7. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 7 Possession Processing  Customers are less physically involved compared to people processing services  Involvement is limited  Production and consumption are separable

8. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 8 Mental Stimulus Processing  Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers  Physical presence of recipients not required  Core content of services is information-based  Can be “inventoried”

9. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 9 Information Processing  Information is the most intangible form of service output  But may be transformed into enduring forms of service output  Line between information processing and mental stimulus processing may be blurred.

10. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 10 The Purchase Process for Services Prepurchase Stage Service Encounter Stage Post-Encounter Stage

11. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 11 Prepurchase Stage Service Encounter Stage Post-Encounter Stage Prepurchase Stage: Overview  Customers seek solutions to aroused needs  Evaluating a service may be difficult  Uncertainty about outcomes increases perceived risk  What risk reduction strategies can service suppliers develop?  Understanding customers’ service expectations  Components of customer expectations  Making a service purchase decision

12. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 12 Customers Seek Solutions to Aroused Needs  People buy goods and services to meet specific needs/wants  External sources may stimulate the awareness of a need  Companies may seek opportunities by monitoring consumer attitudes and behavior Figure 2.4 Prudential Financial’s advertising stimulates thinking about retirement needs Courtesy of Masterfile Corporation

13. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 13 Evaluating a Service May Be Difficult  Search attributes help customers evaluate a product before purchase  Style, color, texture, taste, sound  Experience attributes cannot be evaluated before purchase—must “experience” product to know it  Vacations, sporting events, medical procedures  Credence attributes are product characteristics that customers find impossible to evaluate confidently even after purchase and consumption  Quality of repair and maintenance work

14. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 14 How Product Attributes Affect Ease of Evaluation Source: Adapted from Zeithaml Most Goods High in search attributes High in experience attributes High in credence attributes Difficult to evaluate * Easy to evaluate Most Services Clothing Chair Motor vehicle Foods Restaurant meals Lawn fertilizer Haircut Entertainment Computer repair Education Legal services Complex surgery * NOTE: Difficulty of evaluation tends to decrease with broad exposure to a service category and frequency of use of a specific supplier

15. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 15 Perceived Risks in Purchasing and Using Services  Functional—unsatisfactory performance outcomes  Financial—monetary loss, unexpected extra costs  Temporal—wasted time, delays leading to problems  Physical—personal injury, damage to possessions  Psychological—fears and negative emotions  Social—how others may think and react  Sensory—unwanted impact on any of five senses

16. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 16 How Might Consumers Handle Perceived Risk?  Seeking information from respected personal sources  Relying on a firm that has a good reputation  Looking for guarantees and warranties  Visiting service facilities or trying aspects of service before purchasing  Asking knowledgeable employees about competing services  Examining tangible cues or other physical evidence  Using the Internet to compare service offerings and search for independent reviews and ratings

17. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 17 Strategic Responses to Managing Customer Perceptions of Risk  Offer performance warranties, guarantees to protect against fears of monetary loss  For products where customers worry about performance, sensory risks:  Offer previews, free trials (provides experience)  Advertising (helps to visualize)  For products where customers perceive physical or psychological risks:  Institute visible safety procedures  Deliver automated messages about anticipated problems  Websites offering FAQs and more detailed background  Train staff members to be respectful and empathetic

18. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 18 AOL Offers Free Trial Software to Attract Prospective Customers (Fig 2.6)

19. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 19 Understanding Customers’ Service Expectations  Customers evaluate service quality by comparing what they expect against what they perceive  Situational and personal factors also considered  Expectations of good service vary from one business to another, and among differently positioned service providers in the same industry  Expectations change over time  Example: Service Perspectives 2.1  Parents wish to participate in decisions relating to their children’s medical treatment for heart problems  Media coverage, education, the Internet has made this possible

20. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 20 Factors Influencing Customer Expectations of Service (Fig 2.8) Predicted Service Explicit & Implicit Service Promises Word-of-Mouth Past Experience Desired Service ZONE OF TOLERANCE Adequate Service Personal Needs Beliefs about What Is Possible Perceived Service Alterations Situational Factors Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “ The Nature and Determinants of Customer Expectations of Service, ” Journal of the Academy of Marketing Science 21, no. 1 (1993): pp 1 – 12.

21. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 21 Components of Customer Expectations  Desired Service Level:  Wished-for level of service quality that customer believes can and should be delivered  Adequate Service Level:  Minimum acceptable level of service  Predicted Service Level:  Service level that customer believes firm will actually deliver  Zone of Tolerance:  Range within which customers are willing to accept variations in service delivery

22. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 22 Prepurchase Stage Service Encounter Stage Post-Encounter Stage Service Encounter Stage: Overview  Service encounters range from high- to low-contact  Understanding the servuction system  Service marketing systems: high- contact and low-contact  Role and script theories  Theater as a metaphor for service delivery: An integrative perspective  Implications for customer participation in service creation and delivery

23. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 23 Service Encounters Range from High-Contact to Low-Contact (Fig 2.9) Figure 2.9 Levels of Customer Contact with Service Organizations

24. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 24 Distinctions between High-Contact and Low-Contact Services  High-Contact Services  Customers visit service facility and remain throughout service delivery  Active contact between customers and service personnel  Includes most people-processing services  Low-Contact Services  Little or no physical contact with service personnel  Contact usually at arm’s length through electronic or physical distribution channels  New technologies (e.g. the Web) help reduce contact levels  Medium-Contact Services Lie in between These Two

25. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 25 The Servuction System: Service Production and Delivery  Service Operations (front stage and backstage)  Where inputs are processed and service elements created  Includes facilities, equipment, and personnel  Service Delivery (front stage)  Where “final assembly” of service elements takes place and service is delivered to customers  Includes customer interactions with operations and other customers  Service Marketing (front stage)  Includes service delivery (as above) and all other contacts between service firm and customers

26. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 26 Service Marketing System for a High-Contact Service (Fig 2.10) SERVICE MARKETING SYSTEM

27. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 27 Service Marketing System for a Low-Contact Service (Fig 2.11) SERVICE MARKETING SYSTEM

28. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 28 Theater as a Metaphor for Service Delivery “All the world’s a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts” William Shakespeare As You Like It

29. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 29 Theatrical Metaphor: An Integrative Perspective  Service dramas unfold on a “stage”—settings may change as performance unfolds  Many service dramas are tightly scripted, others improvised  Front-stage personnel are like members of a cast  Like actors, employees have roles, may wear special costumes, speak required lines, behave in specific ways  Support comes from a backstage production team  Customers are the audience—depending on type of performance, may be passive or active participants

30. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 30 Implications of Customer Participation in Service Delivery  Greater need for information/training to help customers to perform well, get desired results  Customers should be given a realistic service preview in advance of service delivery, so they have a clear picture of their expected role Figure 2.13: Tourists Appreciate Easy-to- Understand Instructions When Traveling

31. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 31 Prepurchase Stage Service Encounter Stage Post-Encounter Stage Post-Encounter Stage: Overview  Evaluation of service performance  Future intentions

32. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 32 Customer Satisfaction Is Central to the Marketing Concept  Satisfaction defined as attitude-like judgment following a service purchase or series of service interactions  Customers have expectations prior to consumption, observe service performance, compare it to expectations  Satisfaction judgments are based on this comparison  Positive disconfirmation if better than expected  Confirmation if same as expected  Negative disconfirmation if worse than expected  Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and situational factors  Research shows links between customer satisfaction and a firm’s financial performance

33. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 2 - 33 Customer Delight: Going Beyond Satisfaction  Research shows that delight is a function of three components:  Unexpectedly high levels of performance  Arousal (e.g., surprise, excitement)  Positive affect (e.g., pleasure, joy, or happiness)  Is it possible for customers to be delighted by very mundane services?  Strategic links exist between customer satisfaction and corporate performance.  Getting feedback during service delivery help to boost customer loyalty  Progressive Insurance seeks to delight customers through exceptional customer service (Best Practice in Action 2.1)